Franco-German industrial pact is finished before it’s even begun

THOSE taking the time and trouble to argue against a Franco-German partnership on industrial policy in Europe, while warning Paris and Berlin that they could not impose their own approach, need not bother.

Plans for a Franco-German alliance aimed at creating ‘European champions’ are already dead in the water.

On 1 June, Chancellor Gerhard Schröder and his Economy Minister Wolfgang Clement were due to meet French premier Jean-Pierre Raffarin and Finance Minister Nicolas Sarkozy to boost a joint strategy on industrial policy.

Paris and Berlin had trumpeted, a few weeks ago, a new strategy “to encourage the creation of industrial champions needed by the Europe of tomorrow, of which France and Germany could build a number”.

But the French side abruptly called the meeting off and announced it would only take place after the European elections, two weeks later.

The reason given for the meeting’s hasty cancellation – diary problems – was blatantly implausible. Sarkozy had to attend an Ecofin meeting on 1-2 June, government sources explained, so he could not be present at the Berlin summit.

But the Ecofin meeting could not have come as a surprise to Sarkozy – there are monthly finance ministers gatherings, planned long in advance.

In addition, he could have sent a state secretary to replace him at the discussion in Luxembourg – a common practice among ministers – if France was serious about engaging in a partnership for industrial policy with Germany.

It seems clear that the reason Paris clumsily cancelled the summit – the only precedent in recent years is the suspension of a summit with the UK at the peak of disputes over the war in Iraq – was to avoid a predictable clash with its potential partner.

It was obvious that the four politicians were unlikely to make small talk while sipping Sekt in Berlin, but were due to discuss concrete examples of industrial developments in which Paris has stepped on Berlin’s feet.

Raffarin and his finance minister were, in fact, expecting a harsh reprimand over their intervention in the bail-out of engineering giant Alstom and the bid battle over Paris-based pharmaceuticals group Sanofi-Synthélabo – both at the expense of interested German companies.

By postponing the meeting, the Frenchmen sought to avoid a quarrel with Germany on the eve of the European elections. But also just before final negotiations on the EU constitution and major decisions on the future president of the European Commission and the appointment of the top manager of the Council of Ministers – a post that Paris would like to keep for Pierre de Boissieu.

The French leaders have ambitious plans for the rest of the year and need the support of Germany to realize them. An open clash on industrial policy would be ill-timed.

The French hope that by holding the meeting closer to the final showdown on the constitution (17-18 June), they will force the Germans to calm down, be pragmatic and stop complaining about their companies’ bids being rejected. The reason? To present a united front and win their joint demands on the constitution.

Sarkozy rightfully feared the industry meeting, as the scene was set for a face-off in Berlin after an angry Clement publicly slapped Paris’ “relapse into national interventionism”. The incident has put on ice previous talk about ‘European champions’, which alarmed more liberally minded member states.

UK Trade and Industry Secretary Patricia Hewitt had criticized the plans, saying “the challenge for Europe is not to think about national champions, or even European champions and benchmark ourselves against the best, wherever the best is”.

“I think national champions are a very old-fashioned way of thinking. What we need are groups that are not only doing well in their home markets but are doing well internationally,” Hewitt added.

This led many to talk about the growing divide between London’s free-market approach and the defensive industrial policy of France – backed by Germany.

What London wants from EU industrial policy is simplified regulations and encouragement of small companies, not protectionism of national big-hitters – policy it believes keeps Europe lagging behind.

But Hewitt may as well have kept quiet: only days after Schröder and Raffarin issued their fraternal declaration, Paris intervened to encourage the merger of Sanofi-Synthélabo with Aventis to create a French champion. On top of this, it pushed for an admitted “Franco-French” solution to Alstom, allowing the cash-strapped company that produces the nation’s highly praised TGV high-speed train to remain intact through an injection of fresh capital and so enabling it to refuse a bid from Germany’s Siemens.

Alstom’s chief Patrick Kron bluntly rejected Siemens’ proposal to buy some of its energy assets – while insisting that other partners were welcome. According to insiders, Kron had cleared the statement with Sarkozy.

It also emerges then that the French government had totally ignored German interests in the Alstom case – which is an early indication of how frail Paris’ commitment towards creating truly European champions actually is. This intervention – the lastest in a series – demonstrates that national ownership matters to France. Paris wants to ensure that French companies remain in French hands.

Other European nations, such as the UK, do not worry too much about national possession: as long as companies provide employment in their countries, who cares where the head office is?

But France does, evidenced by its desperate attempts to remain an industrial power and maintain a French label on highly regarded companies – whatever the price to keep them alive.

This being the case, the government in Paris should stop waxing lyrical about support for ‘European’ champions. When Raffarin says ‘European’ he thinks ‘French’. Or, as Sarkozy would say, ‘Franco-Français’.